CPB: 52 Percent Income Tax is Too High

THE HAGUE, 31/05/13 - The top income tax rate of 52 percent is too high, the Central Planning Bureau (CPB) considers. It concluded in a report Thursday that the rate could best be set at 49 percent.

For politicians on the left, extra taxes on the highest incomes have for years been a much-paraded hobby-horse.

In the last elections, Labour (PvdA) and the leftwing Greens (GroenLinks) said they wanted a top rate of 60 percent, while the Socialist Party (SP) actually wants to go to 65 percent.

Unwise, is the CPB’s judgement. “Raising the top rate does not yield more, but actually less tax revenues,” according to the researchers. “This also applies if the top rate is raised from an income of 150,000 euros.” This could cost the Treasury 120 million euros.

For 2012, the cabinet introduced a ‘one-off’ levy of 60 percent for incomes from 150,000 euros. This was intended as a crisis levy.

The statisticians say that people with high salaries will decide to work less. More people will retire earlier, having a negative effect on labour participation. A higher top rate can also discourage a successful career or entrepreneurship. Emigration is then an attractive option. All these effects ensure that the tax service ultimately raises less money.

According to the new calculations, the ideal rate in the Netherlands is 49 percent, three points below the present rate. This would maximise revenues, according to the Policy Brief published Thursday, drawn up by economics professor Bas Jacobs van de Erasmus University, PhD student Floris Zoutman of the same university and Egbert Jongen of the CPB.

According to the CPB, the Netherlands primarily differs from the Anglo-Saxon countries because its concentration of high incomes is stable and very low. Only in Denmark does the top 1 percent of incomes account for an even smaller part of total income. In the US, the UK and Canada, this percentage has risen very strongly in the last 30 years.

Speaking in his personal capacity, Jacobs said in a CPB lecture that the Netherlands should think more of taxing wealth and capital gains. Inequality in wealth has in fact increased in the past decades. He is thinking of heavier taxes on houses, pensions and inheritance.